LIQUIDITY HIGH OR LOW?

verfasst von leibovitz, 08.11.2001, 10:42

Question -- A few of us here studied the Chart of the Day"Limited Upside" from October 30 th and compared it to what our equity strategist has been saying about liquidity. Basically, he and Ned Davis are using two different charts to measure liquidity -- he is using money market funds assets relative to the Wilshire 5000 index and NYSE Composite to show that liquidity levels are at
record highs. Ned is using stock mutual funds cash/assets ratio to show low cash. I know that part of the explanation is the theory
that PMs (portfolio managers) are now under more pressure to be fully invested. Which indicator is more relevant? Why is it that his chart and your chart correspond nearly exactly EXCEPT for 98 to present? Excess liquidity in money market assets was also accompanied by excess cash in stock mutual funds in 1982, 1990 but not 1998. Why have they diverged? Is the current scenario
that because mutual funds are low cash, there is limited upside, but that the high liquidity in money markets ensure at least"some" kind of upside? Also, could we have a comparison of the two graphs going back to the 1960s? Is 1998 to present the single aberration or have there been others where the money markets relative to NYSE composite liquidity levels didn’t match up with the
cash levels in mutual funds?

Answer -- This is an excellent question. The problem with Money Market Mutual Funds (MMMF) is two-fold. Ever since the invention of Money Market Mutual Funds around 1980 with the subsequent ability to pay interest on checking accounts, they have become the savings vehicle of choice. What we don’t know is how much of the MMMFs are checking accounts, savings accounts, or potential stock market liquidity. We know for fairly certain that short interest is mostly all potential stock market liquidity as is credit balances in cash and margin accounts at brokers as is the cash held by domestic equity funds. But we don’t know how to break down the MMMFs. Moreover my second problem is that the data goes back to only 1980, and our chart below (middle clip) which uses M3 as liquidity and includes the MMMFs, shows liquidity to be low. So those are the problems I see with just looking at MMMF. My guess is that the bottom clip below (Wall Street’s favorite chart) is way overstated since 1998 as to actual stock market liquidity, but that the top clip is understated by 1% or so by mutual funds that must stay fully invested. I hope this helps.
As for the overall market -- Big Mo is 38%, Big Mo’s Tape is 36% (both neutral), but LEXI is 94%, and the Super-10 is a strong +9. The overall indicator evidence is, at worst, neutral.

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gesamter Thread:

• LIQUIDITY HIGH OR LOW? - leibovitz, 08.11.2001, 10:42
  • Quelle? (owT) - El Sheik, 08.11.2001, 13:11
    • http://www.ndr.com/ (owT) - leibovitz, 08.11.2001, 16:45